Method and system for creation of an interest only strips index

ABSTRACT

A method A computer-implemented method of creating an SBA 7(a) index of interest only strip pools comprising: (1) forming one or more candidate pools based on specific characteristics of SBA 7(a) interest only pools; (2) determining one or more selection criteria for including one or more candidate pools in an index; (3) comparing the one or more candidate pools to the selection criteria; (4) and if the criteria is met, then (5) weighting the pool and (6) storing said pool in the index.

CROSS-REFERENCE TO RELATED APPLICATIONS

This is a continuation-in-part of and claims the priority benefit under35 U.S.C. 120 of U.S. patent application Ser. No. 13/442,922 entitled AMETHOD AND SYSTEM FOR CREATION OF A FLOATING RATE POOLED INDEX, filedApr. 10, 2012, the entire disclosures of which are hereby incorporatedby reference herein.

FIELD OF INVENTION

The invention relates generally to investment bond markets and a methodand system, as implemented by a software program on a computer system,for the construction and maintenance of a SBA 7(a) interest only stripsindex and investment products utilizing the index.

BACKGROUND

An index is a statistical composite that is used to indicate theperformance of a market or a market sector over various time periods.Examples of indices that are used to gauge the performance of stocks,bonds and other securities in the United States include the Dow JonesIndustrial Average, the National Association of Securities DealersAutomated Quotations (NASDAQ) Composite Index, the New York StockExchange (NYSE) Composite Index, etc. In general, the Dow JonesIndustrial Average contains thirty (30) stocks that trade on the NYSE aswell as NASDAQ, and is a general indicator of how shares of the largestUnited States companies are trading. The NASDAQ Composite Index is acomposite index of more than three thousand (3,000) companies listed onthe NASDAQ (also referred to as over-the-counter or OTC stocks). It isdesigned to indicate the stock performance of small-cap and technologystocks. Finally, the New York Stock Exchange Composite Index is acomposite index of shares listed on the New York Stock Exchange.

An interest only (IO) strips generally refers to the interest portion ofmortgage, Treasury or bond payment, which is separated and soldindividually from the principal portion of those same payments. Also forexample, the periodic payments of several bonds can be “stripped” toform synthetic zero-coupon bonds. Financial institutions through itsdealers, often strip and restructure bond payments in an effort to earnarbitrage profits. Zero-coupon Treasury strips are an importantcomponent in financial calculations and bond valuations. For example,the zero coupon or spot-rate Treasury yield curve is used inoption-adjusted spread (OAS) calculations and for other valuations ofbonds with embedded options.

Although within financial markets there exists indexes that trackproducts such as residential Mortgage Backed Securities (MBS) IO stripsecuritizations, no index for Small Business Administration SBA 7(a)loans interest only strips currently exist.

The SBA is an independent U.S. federal agency created for the protectionof the interests of small business. There are more than 27 million smallbusinesses in the U.S. that employ more than half of all private sectoremployees and generate 65% of net new jobs as measured between 1993 and2009. SBA 7(a) loans are the largest component of the SBA's businessloan program. These loans are only available on a government guaranteedbasis, which range from 75% to 90% of the loan having a $5.0 millionmaximum loan amount. The guarantee loan program originates from acommercial lender or licensed non bank lender.

The guaranteed portion of the SBA 7(a) Pooled loan is eligible to besold and then pooled into securities under the SBA 7(a) Pooling Program.The SBA Pools are referred to as pass-through securities where poolassemblers actively bid on the loans, aggregate the loans thus acquiredthrough bidding, and optionally pass them into the securities market fortrading. All the pools are issued with an original face amount of thebonds. By way of example, 10 individual loans may comprise a $10,000,000pool, whereby a monthly principal and interest paid by the borrowers ofthe underlying loans is passed through to an investor in the pool, basedon the investor's pro rata share of the pool.

The SBA pools amortize and are issued with an original face amount ofthe pool and begin with a factor of 1.0000. Each month following theissuance month, as principal is paid down by the borrower, the factor isreduced. When the last dollar of principal is paid back the factor willbe 0.000000. A factor is calculated by dividing the current face amountof the pool by the original face amount of the pool.

Although over different periods, requirements for pool parameters canchange, by way of example, as of January 2011, the pools must have hadthe following characteristics: (a) a minimum original pool size of $1.0million, (b) a minimum of four (4) loans in a pool, (c) that no singleloan could consist of more than 25% of a pool for standard pools, (d)that no single loan could consist of more than 10% of a pool forWeighted Average Coupon (WAC) pools, (f) a maximum difference inborrower rates would be limited to 2%, (g) all loans in a pool requireda monthly repayment schedule, (h) loans could vary in remaining maturityby no more than 30% for standard pools, and (i) prepayment penalties onloans with original maturities of 15 years of longer.

SBA 7(a) loans have a loan amortization of monthly principal payments inaddition to possible prepayments. Such principal prepayments arereferred to as the constant prepayment rate (CPR) within the SBAindustry. The CPR is calculated as the total dollar amount of notionalvalue loan payoffs as an annualized percentage of the total outstandingnotional loan value. The principal pay-downs (amortization plusprepayment) are reported with a two month lag, such that the pay-downreturn, for example February is based on the reported Decemberprepayment data. The CPR is sometimes referred to as the prepaymentspeed. High prepayment speed CPR will reduce the income to the investoror lender.

Typically all SBA prime or Libor-based variable rate loans areoriginated at between zero (0) and a maximum number of basis points overthe set base rate. By way of example, loans are originated at betweenzero (0) and 275 basis points over the base rate published in the WallStreet Journal (also referred to as Prime or Libor). The maximum ratethat can be charged on most SBA fixed rate loans is 275 basis pointsabove the current Prime or Libor. One exception exists for loans under acertain amount, as for example, $50,000, that can be assessed anadditional 200 basis points rate (e.g., 200) making the max ratePrime/Libor bases rates (e.g., +475) basis points for the smaller loans.By way of example, when the guaranteed portion of a loan is sold in thesecondary market, the lender retains a servicing fee typically greaterthan or equal to 100 basis points, making the maximum rate that can beoffered for sale on a variable rate loan, Prime+a basis, such asPrime+1.75%. The initial purchaser can securitize the guaranteed portionof a loan into an individual guaranteed interest certificate (alsoreferred to as a SBA loan certificate) through the fiscal and transferagent (FTA) at this rate, less the FTA's fee and the SBA's program fee.By way of example the variable rate loan Prime+a basis less the FTA'sfee and the SBA's program fee may be set at 55 basis points of the SBAguarantee fee and 12.5 basis points for an FTA Fee, the sum of the twofees equal to 67.5 basis points. The purchaser also may “strip” aportion of the interest rate from the guaranteed SBA 7(a) loan portion,creating what is called an “originator fee” or “interest-only strip”,and securitize the guaranteed loan portion at a lower interest rate.

These originator fee or interest-only strip assets are created by poolassemblers and at their option at the time of pooling the loans, may beconverted into pass-through securities. By way of example and notlimitation, each originator fee ownership is referenced by the issuanceof a Confirmation of Originator Fee, COOF (analogous to a stockcertificate) that details the characteristics of that particularoriginator fee and to whom it is registered. By way of example and notlimitation, the maturity date, the balance of the loan at the time ofissuance, the note date and the rate of interest stripped from theguaranteed loan. Once stripped the rate of interest remains fixed forthe term of the loan. If the underlying loan from which the originatorfee was stripped is a floating rate loan and the investor interest rateincreases or decreases due to the underlying base index increasing ordecreasing the originator fee coupon or interest rate would not change.All of these originator fees are stripped from the guaranteed portion ofSBA 7(a) loans.

By way of example the investment industry offers a product referred toas the Receipt for Multiple Originator Fees or RMOF, where many COOFsare bundled into one certificate for ease of accounting and reporting.

When a pool assembler prepares loans for pooling it has the ability tomanage the amount of premium and interest available associated with theloans being pooled. As an example: assume that the cost for the loanswas $117.50 and the available net rate was Prime+1.075% margin with amaturity of 25 years. The pool assembler could strip interest off tocreate a lower coupon and lower price to meet the investor demands. Ifthe investor did not want to pay more than $110 for the investment inthe pool, the pool assembler could reduce the pool rate to Prime less0.675% and sell the pool to the investor at $110. To do this the poolassembler would strip interest from the loans in the amount of 1.75%(1.075% less 0.675%)) equals 1.75%.

Currently, there are no reliable SBA 7(a) interest only pool indices toassist the market in making considered judgments about investing in apool. An index of SBA 7(a) IO issued pools would provide investors areliable bond-like investment if an index was constructed from poolswith certain characteristics. Therefore, a need exists to create theuniverse of pools having certain characteristics and from that universea selection process for inclusion of these pools in an index thatreflects the performance to SBA 7(a) pools held for investment. Themagnitude and complexity dealing with the dynamics of such pools alsonecessitates an automation process by which the pools having certaincharacteristics are identified and the application of selection criteriato qualify only those pools that produce an investor quality index.

SUMMARY OF THE INVENTION

The present invention includes a computer-implemented method of creatingand managing an index fund based on interest only assets or cash flowfrom SBA 7(a) pools or loans including the steps of: (1) forming one ormore candidate pools based on specific characteristics of SBA 7(a)interest only pools; (2) determining a selection criteria for includingone or more candidate pools in an index; (3) comparing the one or morecandidate pools to the selection criteria, (4) and if the selectioncriteria are met, then (5) weighting the pool and (6) storing said poolin the index.

The present invention includes a non-transitory computer-readable mediumhaving stored thereon computer-readable instructions for implementing amethod comprising: (1) forming one or more candidate pools based onspecific characteristics of SBA 7(a) interest only pools; (2)determining one or more selection criteria for including one or morecandidate pools in an index; (3) comparing the one or more candidatepools to the selection criteria, (4) and if the selection criteria aremet, then (5) weighting the pool and (6) storing said pool in the index.

The invention further includes computer system for creating an SBA 7(a)index of interest only pools comprising: (1) a computer processor forforming one or more candidate pools based on specific characteristics ofSBA 7(a) floating rate pools; said processor storing in a first databasepools having specific characteristics of SBA 7(a) interest only pools;(2) said computer processor storing one or more selection criteria in asecond database for use in determining the suitability of including theone or more candidate pools in an index; (3) said computer processortesting if the selection criteria are met by the one or more candidatepools, and if met then (5) weighting the pool and (6) storing in a thirddatabase the pool thus forming the index.

The present invention further relates to a method as implemented on acomputer system for providing an index composed of U.S. dollardenominated SBA Guaranteed Interest only Pools, including one or moreeligible pools included in the index having interest only coupons, theFull Faith and Credit of the U.S. Government, and principal and interest(P & I) provided through a fund, such as a Master Reserve Fund,facilitated by a fiscal and/or transfer agent, said eligible poolshaving maturities longer than one (1) year, remaining loan pools havinga portfolio of loans greater than 4 and a factor greater than 0.25%.

The invention further relates to a method as implemented on a computersystem that periodically removes from the index, pools that have a loancount that falls below a certain number, such as by way of example five(5) or a pool factor that falls below 0.25%, in which case the specificpool breaks an established loan count or factor index rule.

The invention further relates to a method as implemented on a computersystem that calculates at the time the pool is issued for inclusion inthe index, a onetime Average Loan Size, to determine if the pool meetsthe minimum average loan initial size.

The invention further relates to a method as implemented on a computersystem that calculates the index price on the offered side for each poolentered into the index.

The invention further relates to a method as implemented on a computersystem that calculates for all SBA 7(a) pools already in the index adaily price on the bid side.

The invention further relates to a method as implemented on a computersystem that calculates yields based upon a CPR.

The invention further relates to an index of SBA 7(a) interest onlypools having a built-in delay, as for example an 84 day delay of which54 days are without interest.

The invention further relates to an index of SBA 7(a) interest onlypools weighted by the actual outstanding balance of eligible pools.

The invention further relates to an eligible pool weighted based uponthe index rules for liquidity, adjusted for the current month's factorfor each pool and weighted in the indexes based on the current balanceof the pool divided by the total amount of loan balances in the index.

The invention further relates to an index comprised of of twosub-indexes determined by two distinct maturity cells.

The invention further relates to an index portfolio that is rebalancedat month-end for index rules, such as established by the selectioncriteria.

The invention further relates to a method as implemented on a computersystem that includes new issues at month-end based upon compliance withindex rules.

The invention further relates to a method as implemented on a computersystem whereby issues may be excluded from the index at month-end due tonon compliance with index rules established by the selection criteria.

The invention further relates to a method as implemented on a computersystem that excludes an issue shorter than a fixed year period.

The invention further relates to a method as implemented on a computersystem wherein on a periodic basis every pool in the index the previousmonth is reviewed for continued eligibility for the index using thecriteria: 1) every pool evaluated for a current factor greater than aspecified amount and every pool evaluated for a minimum remainingspecified fixed loan count.

An embodiment of the invention herein includes an SBA 7(a) IO index as afinancial element or feature of the physical investment asset, such asby way of example a COOF or RMOF.

An embodiment of the invention herein includes a securitized COOFphysical asset, which is stripped from the guaranteed loan and thenpooled for investment.

An embodiment of the invention herein includes one or more securitizedloans utilizing the SBA 7(a) IO index to form COOFs or RMOFs pools ofloans. An embodiment of the invention herein includes the creation of aportfolio of securitized COOFs or RMOFs having an index based upon anSBA 7(a) IO.

BRIEF DESCRIPTION OF THE DRAWINGS

Understanding of the present invention will be facilitated byconsideration of the following detailed description of the preferredembodiments of the present invention taken in conjunction with theaccompanying drawings wherein:

FIG. 1 is a block diagram of a computer system for creating and managingSBA 7(a) interest only pooled indexes according to an embodiment of thepresent invention;

FIG. 2 is a flow chart of a method for creating SBA 7(a) interest onlypooled indexes according to an embodiment of the present invention;

FIG. 3 is a flow chart of a method for creating SBA 7(a) interest onlypooled indexes according to an embodiment of the present invention.

DETAILED DESCRIPTION

It is to be understood that the figures and descriptions of the presentinvention have been simplified to illustrate elements that are relevantfor a clear understanding, while eliminating, for the purpose ofclarity, many other elements found in computing systems and methods ofmaking computations. Those of ordinary skill in the art may recognizethat other elements and/or steps may be desirable in implementing thepresent invention. However, because such elements and process steps arewell known by those of ordinary skill in the art, and because they donot facilitate a better understanding of the present invention, adiscussion of such elements and steps is not provided herein.

The following description includes the best mode of carrying out theinvention. The detailed description is made for the purpose ofillustrating the general principles of the invention and should not betaken in a limiting sense. The scope of the invention is determined byreference to the claims. Each part is assigned, even if structurallyidentical to another part, a unique reference number wherever that partis shown in the drawing figures.

The creation of the family of SBA indexes describe herein is to offer abenchmark of performance for the SBA security market place. Thisbenchmark could be used for, among other things: (a) as a basis ofinvestment direction of a particular mutual fund, hedge fund or ETFbased on the inventive family of SBA indexes; (b) as a tradeable indexto offer investors a hedging tool for a specific SBA asset class ofsecurities; (c) for the SBA market, analogous to ABX index for thesub-prime mortgage securities market; (d) a benchmark for the physicalasset of originator fees within the market place. The performance of theunderlying COOF physical asset is 100% derived from the prepaymentbehavior of the SBA 7(a) pool securities' market. In one embodiment theinventive family of SBA indexes herein represents this performance fromthe time of the creation of the physical asset through the pooling andsecuritization of loans, COOFs or RMOFs. Those skilled in the art ofinvestments of COOFs or RMOFs know how to create the physical assets,securitize the loans and strip from the guaranteed loan portion and thenpool investments for trading in the appropriate market place.

By way of example and not limitation the creation of a portfolio ofsecuritized COOFs, having and index based upon an SBA 7(a) IO loans asdisclosed herein serves as one embodiment of the present invention. Thesecuritized COOFs represent physical assets, which are stripped from theguaranteed loan and then pooled, for investment in the appropriatemarket place and valued according to the pool index as further set forthin yet another embodiment of the invention described herein. Thoseskilled in the art of investments of COOFs or RMOFs know how tosecuritize loans and strip from the guaranteed loan and then poolinvestments for trading in the appropriate market place.

In one embodiment the index herein is composed of SBA IO stripssynthetically created, as set forth below, from SBA 7(a) Floating RatePools that qualify to be included in the SBA 7(a) Floating Rate PoolIndex. Each Pool and subsequent Interest strips are US dollardenominated. All IO strips included in the index have the Full Faith andCredit of the United States of America. All SBA 7(a) loan pools, fromwhich the IO strips are created, have timely Principal and Interestprovided through the Master Reserve Fund facilitated by a fiscal andtransfer agent. All eligible pools must have remaining loans greaterthan 4, a factor greater than, or equal to 0.25% and no cap or floor onthe pool coupon. The index does not allow “pool of pools” or privatesecuritizations of SBA Pools or IO strips to be included.

Indices may, for example, serve as barometers for a given market orindustry and benchmarks against which financial or economic performanceis measured. The value of any given index may be arbitrarily set, justas the total shares of all securities in the index may be arbitrary. Forease and clarity throughout this document, however, the presentembodiment presumes the value of the subject index equals 100.Furthermore, the selection criteria may over time change depending onnew government laws, regulations and rules.

An index may be derived from a subset of a universe or pool ofsecurities meeting at least one selection criterion, and may optionallybe weighted according to another selection criterion. Although overdifferent periods characteristics for pools can change, by way ofexample SBA 7(a) pools typically exhibit the following characteristics:(a) monthly principal P&I, (b) guaranteed timely P&I on a date certainsuch as the 25^(th) day of the month after an 85 day delay, (c)adjustable rate reset on a date certain such as the first business dayof each month or calendar quarter, (d) due to a monthly or quarterlyreset, SBA pools have 30 day or 90 day index durations, and (e) SBArecasts the amortization of each pool based on the final maturity of thepool and the net pool interest at each reset.

The index uses CPRs calculated specifically for each index based on itscharacteristics and calculated on its discreet prepayments. CPRs arebased on the true 12 month CPR for each underlying SBA 7(a) pool whichqualifies to be in the SBA 7(a) pool index and historically reported bya transfer agent, such as Colson Services' monthly factor report on allSBA 7(a) pools. To administer its secondary market program, SBA hasappointed Colson Services Corp., (a proprietary organization), to act asits fiscal agent and transfer agent.

The index weighted average 12 month CPR is then based on that specificsub-index. For example, an “All Pools Equal Weighted Index” uses eachunderlying index qualified pool's actual 12 month CPR and equallyweights them using the same original face for each pool (currently $10million), as set out in the Index Rules, adjusted for the current monthsfactor, and calculates the historical weighted average 12 month CPR.This same methodology is used for all six sub-indexes each month.

SBA loans carry the unconditional full faith and credit guarantee of theU.S. government. Only the guaranteed portion of these loans can be soldby the underwriting lenders and pooled into SBA 7(a) pass through pools.The non-guaranteed portion of the SBA (a) loans can be sold to athird-party; however, the originating lender must retain a minimum of 5%of every loan and continue to service the loan over the life of theloan. Only the guaranteed SBA 7(a) interest only pools are eligible forthese indexes, and are the subject of this invention.

FIG. 1 of the present invention relates to a system 100 for providing anSBA 7(a) interest only pooled index including: comprising: (1) acomputer processor 101 for forming one or more candidate pools based onspecific characteristics of SBA 7(a) interest only loan pools; saidprocessor storing in a first database 103 loans having specificcharacteristics of SBA 7(a) interest only loan pools; (2) said computerprocessor storing a selection criteria in a second database 104 for usein determining the suitability of including the one or more candidateinterest only pools in an index; (3) said computer processor testing ifthe selection criteria are met by the one or more candidate pools, andif met then (5) weighting the pool and (6) storing in a third database105, the pool thus forming the index.

Computer 101 includes a central processor unit (CPU) 106 having a memory114, an arithmetic logic unit (ALU) 113, and input/output (I/O) devices(not shown) for accessing the databases 103, 104, and 105, executing anapplications program 110 that determines the selection criteria forselecting which pools are included in the index, a memory 114 thatstores the applications program, an operating system 112, and thedatabase data used during comparisons and calculations required to carryout the inventive method herein. The computer 101 also has thecapability to communicate with other computer processors 109 via channel119 utilizing direct telephone, satellite or Internet communication.Computer 109 may communicate with workstations 116, A₁, A₂ . . . A_(n)through which various funds, equity markets and other investments andthe SBA 7(a) interest only pool indexes detailed herein.

The computer 101 may include any one or a combination of a personalcomputer, a mouse, a keyboard, a computer display, a touch screen, LCD,voice recognition software, or other generally represented byinput/output devices required to implement the above functionality.

The software that executes a preferred embodiment of the inventionresides in a non-transitory computer-readable medium (CRM) 111 such asexemplified by memory 114 having stored thereon computer-readableinstructions for implementing the method for: (1) forming one or morecandidate pools based on specific characteristics of SBA 7(a) floatingloan pools; (2) determining a selection criteria for including one ormore candidate pools in an index; (3) comparing the one or morecandidate pools to the selection criteria, (4) and if the criteria ismet, then (5) weighting the pool and (6) storing said pool in the index.The non-transitory computer-readable medium as exemplified by memory 114having stored thereon computer-readable instructions commonly referredto as a program also may include program elements such as an operatingsystem, a database management system and device drivers that allow theprocessor to interface with computer peripheral devices (e.g., a videodisplay, a keyboard, a computer mouse, etc.).

Database 103 maintains the candidate pools having certain qualifiedcharacteristics, against which the selection criteria will be comparedto determine if the particular pool in the candidate pool will beincluded in the index. The database 104 maintains the selection criteriafor inclusion and exclusion of the SBA 7(a) interest only pool from theindex. Database 105 contains the index.

Computer memory 114 stores and maintains the criteria for weighting theindexes chosen for the indexes. Computer memory 114 also stores andmaintains the data for the calculation of the daily index as suchcalculation relates to: income return, principal and interest return,price return, daily total return and index levels.

The computer 101 also contains within its memory 114, an operatingsystem 112, and code for carrying out various functions in connectionwith embodiments of the invention herein as well as the databases 103,104 and 105, and to store data relevant to calculations as associatedwith determining the composition of the index. Computer 101 includes atleast one central processor or CPU 106, at least one communication portor hub, at least one random access memory (RAM), at least one read-onlymemory (ROM). Typically the computer 101 is a conventional standalonecomputer however, it may alternatively function as a server whoseoperation may be distributed across multiple computing systems andarchitectures, that combined achieve the function described herein as tocreating an SBA 7(a) interest only index.

The CPU 106, such as one or more conventional microprocessors and one ormore supplementary co-processors such as math co-processors.Additionally the CPU 106 has means such as arithmetic logic unit (ALU)113 for calculating and logical registers for addressing and retrievingand storing data in the one or more databases. The CPU 106 typically isin communication with a communication port through which the CPU 106communicates with other devices such as other servers, user terminals ordevices 109. The communication port may include multiple communicationchannels 119 for simultaneous communication with, for example, otherprocessors, servers or client terminals. As stated, devices incommunication with each other need not be continually transmitting toeach other. On the contrary, such devices need only transmit to eachother as necessary, may actually refrain from exchanging data most ofthe time, and may require several steps to be performed to establish acommunication link between the devices.

The CPU 106 also is in communication with one or more data storagedevices. The data storage devices may comprise an appropriatecombination of magnetic, optical and/or semiconductor memory, and mayinclude, for example, RAM, ROM, flash drive, an optical disc such as acompact disc and/or a hard disk or drive. The processors and the datastorage devices each may be, for example, located entirely within asingle computer or other computing device; or connected to each other bya communication medium, such as a USB port, serial port cable, a coaxialcable, a Ethernet type cable, a telephone line, a radio frequencytransceiver or other similar wireless or wired medium or combination ofthe foregoing.

The data storage devices such as store databases 103, 104 and 105 andmemory 114 may store, for example, (i) the program (e.g., computerprogram code and/or a computer program product) adapted to direct theprocessor in accordance with the present invention, and particularly inaccordance with the methods and processes described in detailhereinafter; (ii) the databases (103,104, 105) adapted to storeinformation that may be utilized to store information required by theprogram. The databases include multiple records, each record includingfields specific to the present invention such as SBA 7(a) interest onlypools, selection criteria, financial objectives, indexes, and reportdata, etc.

The program may be stored, for example, in a compressed, an uncompiledand/or an encrypted format, and may include computer program code. Theinstructions of the program may be read into a main memory of the CPU106 from a computer-readable medium other than the data storage device,such as from a ROM or from a RAM. While execution of sequences ofinstructions in the program causes the processor to perform the processsteps described herein, hard-wired circuitry may be used in place of, orin combination with, software instructions for implementation of theprocesses of the present invention. Thus, embodiments of the presentinvention are not limited to any specific combination of hardware andsoftware.

Suitable computer application program 110 code may be provided forperforming numerous functions such as alternative steps of invention.The computer program code required to implement the above functions (andthe other functions described herein) can be developed by a person ofordinary skill in the art, and is not described in detail herein.

The term “computer-readable medium” as used herein refers to any mediumthat provides or participates in providing instructions to the processorof the computing device (or any other processor of a device describedherein) for execution. Such a medium may take many forms, including butnot limited to, non-volatile media, volatile media, and transmissionmedia. Non-volatile media include, for example, optical or magneticdisks, such as memory. Volatile media include dynamic random accessmemory (DRAM), which typically constitutes the main memory. Common formsof computer-readable media include, for example, a floppy disk, aflexible disk, hard disk, magnetic tape, any other magnetic medium, aCD-ROM, DVD, any other optical medium, punch cards, paper tape, anyother physical medium with patterns of holes, a RAM, a PROM, an EPROM orEEPROM (electronically erasable programmable read-only memory), aFLASH-EEPROM, any other memory chip or cartridge, a carrier wave asdescribed hereinafter, or any other medium from which a computer canread.

In addition to memory 114, various forms of computer readable media maybe involved in carrying one or more sequences of one or moreinstructions to the processor (or any other processor of a devicedescribed herein) for execution. For example, the instructions mayinitially be carried or reside on a magnetic disk of a remote computer.The remote computer can load the instructions into its dynamic memoryand send the instructions over a router, an Ethernet connection, directcable line, or even a telephone line using a modem. A communicationsdevice local to a computing device (or, e.g., a server) can receive thedata on the respective communications line and place the data on asystem bus for the processor. The system bus carries the data to mainmemory, from which the processor retrieves and executes theinstructions. The instructions received by main memory may optionally bestored in memory either before or after execution by the processor. Inaddition, instructions may be received via a communication port aselectrical, electromagnetic or optical signals, which are exemplaryforms of wireless communications or data streams that carry varioustypes of information.

FIG. 2 illustrates method 200 a non-limiting embodiment of theinvention, utilizing a selection criteria indicated above, wherein step201 includes creating database 104 from the universe of SBA 7(a) poolsto form candidate pools by determining if a particular pool meetsgeneral and specific characteristics, such as by way of example it: (A)is an SBA 7(a) U.S. dollar guaranteed interest only pool, (B) meets thefull faith and credit backed by the U.S. government, (C) statesprincipal and interest, where interest accrues uses a 30/360 day countconvention, (D) has a maturity greater than a given number of years, byway of example and not imitation, one (1) year and a remaining number ofloans greater than a given factor, by way of example and (E) notlimitation a factor of 0.25%, (F) a minimum pool loan count of at leasta given amount, by way of example and not limitation, five (5), has aliquidity value greater than a given amount, such as by way of exampleand not limitation $10,000,000, and (G) has an average loan size greaterthan a specified amount, by way of example and not limitation, $250,000,(H) is not a “pool of pools” or private securitization of SBA Pools orIO (Originator fees), or COOF, RMOF, (I) is not a privatesecuritizations of existing SBA Pools, (J) each pool must be Full Faithand Credit of United States of American as guaranteed by the SBA, adirect obligation of the US Government.

Following identification of the pools having the general and specificqualifying characteristics, in step 201, the method then it determinesif those loans meet a list of selection criteria in DeterminingSelection Criteria for Index step 202 as follows:

One embodiment of the invention utilizes, as a selection criteria instep 202, a rule of inclusion in the index that to remain in the indexas an eligible pool a minimum of five (5) loans remain with a 0.25factor or greater.

One embodiment of the invention, includes as selection criteria in step202, a rule of inclusion in the index has a onetime Average Loan Size.This calculation is accomplished only at the time the pool is tested forinclusion in the index for the first time. By way of example, thecalculation may be a simply division of the original face amount of theentire issue and divided by starting load count of the issue. The resultmust be greater than a fixed dollar amount.

Furthermore, a selection criteria in step 202 for inclusion in the indexis that a pool have loan count that does not fall below five (5) or apool factor that falls below 0.25%. If, initially or at the end of eachmonth, in which the specific pool breaks the loan count or factor index,the pool is ineligible for inclusion in the index. No issue shorter thata fix year period, by way of example 10 years to maturity, can enter theindexes.

On a scheduled basis, as for example, each month, a new SBA 7(a)interest only Pool is reviewed for Index Eligibility in the followingorder: Each month's new SBA 7a Floating Rate Pools will be reviewed forIndex Eligibility by the following order:

-   -   First: Original Size of the Pool.    -   Second: No cap or floor on the pool coupon.    -   Third: Maturity years equal to, or greater than, 10 years (120        months).    -   Fourth: Minimum Loan Count.    -   Fifth: Minimum Average Starting Loan Size (Original Pool        size/Original Loan Count)>=$250,000.    -   Sixth: Determination of Maturity Cell (less than or equal to 15        years or Greater than 15 years).

In step 202 each month every pool in the index the previous month willbe reviewed for continued eligibility for the index using the followingcriteria:

-   -   First: Every pool evaluated for a current factor greater than or        equal to 0.25.    -   Second: Every pool evaluated for 5 remaining loans remaining        minimum.

In Access Database Selection Criteria step 204 the computer 101 program110 accesses database 103 containing the specific selection criteria setforth above. In Access Database From interest only pools step 206 thecomputer 101 program 110 accesses database 103 containing a candidateinterest only pool. In “Have All Selection Criteria Met” step 208 thecomputer 101 program 110 determines if the selected candidate pool hasmet each selection criteria set forth in step 202 and if not then thecomputer 101 program 110 chooses one of the criterion listed in step 202and in “Criteria Met” step 214 tests if the selection criterion has beenmet, and if not then “Exclude Pool” step 216 excludes the pool and theprocess of selecting a pool for inclusion in the index begins again atstep 206, whereby another pool is selected. If the “Has Criteria Met”step 214, indicates that the criteria has been met then the computer 101program 110 checks the pool against another selection criterion in thelist as provided in step 202. The process continues until either a poolis excluded in step 214 or all the selection criteria established instep 202 have been met by the particular pool. The selected pool is thenweighted in step 212 and added to the database 105 as an indexed pool instep 218.

The index is weighted by the actual outstanding balance of eligiblepools. Each eligible pool is weighted based upon the index rules forliquidity, adjusted for the current month's factor for each pool andweighted in the indexes based on the current balance of the pool dividedby the total amount of loan balances in the index. In “Determine WeightCriteria” and Apply to Pool step 212 the computer 101 program 110accesses from memory a factor to adjust the liquidity of the pool forthe current month based on the current dollar loan balance of the pooldivided by the total amount of the loans balances in the index. Once thepool is weighted it is stored in memory with an associated weightparameter in database 105.

The index is made up of two sub-indexes determined by two distinctmaturity cells: as by way of example 10.00 to 15.00 and 15.01 to 25years. Once a pool is in a specific maturity cell, it will remainregardless of the remaining maturity. The two cells separate SBA realestate loans (>15 years) from SBA working capital, plant and equipmentloans (<15 years). Historically borrowers have demonstrated differentpayment behavior for each category of funding. The maturity cellssegregate loan categories to track their performance; however, bothsub-indexes are combined to create the SBA 7(a) interest only poolmarket performance.

The index is rebalanced at month-end for index rules, i.e., the methodfrom steps 206 through 218 is repeated using the portfolio of poolsstored in database 105 that were previously included and exist in theindex. New issues may enter at month-end due to selection criteria indexrules. Issues may also leave at month-end due to selection criteriaindex rules.

Once the index is established the index of pools is monetized anddefined in terms of its quantifiable parameters as follows by way ofexample and not limitation the following steps 1 through step 9 below:

(1) All pools enter the index priced on the offering side. All poolsalready in the index are priced daily on the bidding side. All SBA 7(a)IO Index pricing is driven by the valuations of the SBA 7(a) pools,included in the Pool Index and from which the IO Index assets arederived.

(2) Yields are calculated based upon the last 12 months CPR using adiscounted cash flow method (DFC). SBA 7(a) pools have a built in delayas for example an 84 day delay of which 54 days are without interest.

(3) Income Return equals: 100 times (End Accrued less Beginning Accruedplus Interest Payment) divided by the Beginning market Value.

(4) Principal Return equals 100 times (Principal Payment less PrincipalPayment times Beginning Price) divided by Beginning Market Value.

(5) Price Return equals 100 times (End Principal Balance times EndPrice) less End Principal Balance times Beginning Price) divided byBeginning Market Value.

(6) Daily Total Return equals 100 times (End Market Value divided byBeginning Market Value less one).

(7) End Market Value equals (End Principal Balance times End Price) plusEnd Accrued plus Interest Payment.

(8) Begin Market Value equals (Begin Principal Balance times BeginPrice) plus Begin Accrued.

(9) All index levels start at 100 and are based on the daily totalreturn behavior of each index. Total returns are based on price returnplus income return plus principle return. Each index total return iscalculated daily. The daily returns are reinvested and compounded backinto each index on a multiplicative basis, based on the formula:

Beginning Index Level times (1 plus Daily Return divided by 100)=EndIndex Level.

By way of example and not limitation: (1+1.55/100)=101.55 where:

-   Begin Index Level=100.00-   Daily Return=1.55%

(10) Cumulative Total Return equal 100 times (Ending Index Level dividedby Beginning Index Level less 1). By way of example and not limitation:

100*(101.55/100.00)−1=1.55%

Referring to FIG. 3, a preferred embodiment a computerized method 300 isoperable in a computer system for creating an SBA 7(a) index of interestonly strip loan pools, said method causing said computer system toexecute the steps of: (1) forming 301 one or more candidate pools basedon specific characteristics of SBA 7(a) interest only loan pools; (2)determining 303 one or more selection criteria for including one or morecandidate pools in an index; (3) comparing 304 the one or more candidatepools to the one or more selection criteria; (4) and if the selectioncriteria 305 are met, then (5) weighting 307 the pool; and (6) storing309 said pool in the index.

While the present invention has been described with reference to theillustrative embodiments, this description is not intended to beconstrued in a limiting sense. Various modifications of the illustrativeembodiments, as well as other embodiments of the invention, will beapparent to those skilled in the art on reference to this description.It is therefore contemplated that the appended claims will cover anysuch modifications or embodiments as fall within the true scope of theinvention.

1. A computerized method for creating a Small Business Administration(SBA) 7(a) index of interest only strip loan pools that comprises thesteps of: (1) forming by a computer processor one or more candidatepools based on specific characteristics of SBA 7(a) interest only loanpools; (2) determining by the computer processor one or more selectioncriteria for including one or more candidate pools in an index; (3)comparing by the computer processor the one or more candidate pools tothe one or more selection criteria; (4) and if the selection criteriaare met, then (5) weighting the pool by the computer processor; and (6)storing said pool in the index by the computer processor.
 2. Thecomputer method of claim 1, further comprising the step of formingcandidate pools by determining if a particular pool is an SBA 7(a) U.S.dollar guaranteed interest only pool.
 3. (canceled)
 4. The computermethod of claim 1, further comprising the step of forming candidatepools by determining if a particular pool states principal and interest.5. The computer method of claim 1, further comprising the step offorming candidate pools by determining if a particular pool has amaturity greater than a given number of years.
 6. The computer method ofclaim 1, further comprising the step of forming candidate pools bydetermining if a particular pool has a factor of at least 0.25%.
 7. Thecomputer method of claim 1, further comprising the step of formingcandidate pools by determining if a particular pool has a pool loancount of at least a given amount.
 8. The computer method of claim 1,further comprising the step of forming candidate pools by determining ifa particular pool value is greater than a given amount.
 9. The computermethod of claim 1, further comprising the step of forming candidatepools by determining if a particular pool is not one of a “pool ofpools” or private securitization of SBA pools.
 10. The computer methodof claim 1, further comprising the step of forming said index byweighting the actual outstanding balance of eligible pools.
 11. Thecomputer method of claim 1, further comprising the step of forming saidindex by adjusting the liquidity of the pool for the current month basedon the current dollar loan balance of the pool divided by the totalamount of the loans balances in the index.
 12. The computer method ofclaim 1, further comprising the step of creating said index by formingone or more sub-indexes determined by distinct maturity cells.
 13. Thecomputer method of claim 1, further comprising the step of forming saidindex by periodically rebalancing for compliance with the selectioncriteria.
 14. The computer method of claim 1, further comprising thestep of monetizing the index portfolio by initially entering the indexprice on the offering side.
 15. The computer method of claim 1, furthercomprising the step of monetizing the index portfolio by entering aprice for all pools in the index daily on a bidding side.
 16. Thecomputer method of claim 1, further comprising the step of monetizingthe index portfolio by calculating yields based upon the last 12 monthsa constant prepayment rate using a discounted cash flow method.
 17. Thecomputer method of claim 1, further comprising the step of monetizingthe index portfolio by calculating income return.
 18. The computermethod of claim 1, further comprising the step of monetizing the indexportfolio by calculating a principal return.
 19. The computer method ofclaim 1, further comprising the step of monetizing the index portfolioby calculating a price return.
 20. The computer method of claim 1,further comprising the step of monetizing the index portfolio bycalculating a daily total return.
 21. The computer method of claim 1,further comprising the step of monetizing the index portfolio bycalculating an end market value.
 22. The computer method of claim 1,further comprising the step of monetizing the index portfolio bycalculating a cumulative total return.
 23. The computer method of claim1, further comprising the step of creating a physical investment asset.24. The computer method of claim 1, further comprising the step of asecuritizing a Confirmation of Originator Fee (COOF) physical asset. 25.The computer method of claim 24, wherein the COOF physical asset isstripped from a guaranteed loan and pooled for investment.
 26. Thecomputer method of claim 1, further comprising the step of securitizingone or more loans to form one of COOFs or Receipt for MultipleOriginator Fees (RMOFs) pools of loans.
 27. The computer method of claim1, further comprising the step of creating a portfolio of securitizedone or more COOFs or RMOFs, having an index based upon an SBA 7(a) indexof interest only strips.
 28. A non-transitory computer-readable mediumhaving stored thereon computer-readable instructions for implementing amethod comprising: (1) forming one or more candidate pools based onspecific characteristics of SBA 7(a) interest only strip pools; (2)determining one or more selection criteria for including one or morecandidate pools in an index; (3) comparing the one or more candidatepools to the one or more selection criteria; (4) and if the selectioncriteria are met then (5) weighting the pool; and (6) storing said poolin the index.
 29. (canceled)
 30. A computer system comprising: aprocessor, interfaced to a data storage device, that containsinstructions that when executed by the processor perform the steps of:(1) forming one or more candidate pools based on specificcharacteristics of SBA 7(a) interest only loan pools; (2) determiningone or more selection criteria for including one or more candidate poolsin an index; (3) comparing the one or more candidate pools to the one ormore selection criteria; (4) and if the selection criteria are met, then(5) weighting the pool; and (6) storing said pool in the index.